It was not the aftermath of the storm. Indeed, the rain was still pelting down, but South Africa’s economic ship needed to be steered towards lost prosperity. In this, the second part of a series of articles, Professor Raymond Parsons from the Business School at the North-West University (NWU), looks at how the easing of the lockdown restrictions affected the economy.
As a sense of “normality” – and the word is used in its most diluted sense here – returned as restrictions were eased from Level 5 of the lockdown, a gradual recovery of the economy ensued.
“High-frequency data in the second half of the year confirmed that, as the economy slowly reopened, a recovery was under way. Business activity steadily clawed its way back to a level resembling normality. Both business and consumer confidence gradually recovered. Yet it is likely that GDP growth for 2020 as a whole will still be about -7% to -8% as the negative factors play out and the consolidation of the better economic trends has not yet occurred. What lies ahead?” asks Prof Parsons.
“The economic news is not all bad. On the strength of some positive assumptions about the economic outlook, South Africa could still expect to see the GDP growth rate rebound to about 3% in 2021. With subdued inflation, interest rates are likely to remain lower for longer. Among the other bright spots on South Africa’s economic horizon in 2021 are the strong performance of the agricultural sector and certain commodity exports, both of which will help to push growth into positive territory in 2021. The South African Reserve Bank’s latest Quarterly Bulletin also predicts a recovery in personal disposable income and consumer spending in Quarter 2 of 2021, which could underpin an economic revival in 2021.”
Smoother waters then, but no plain sailing yet.
“The South African economy is by no means out of the woods yet. An economic rebound is still only a rebound, and the general outlook remains distinctly uncertain. Most of the existing economic support measures expired at the end of 2020. The reversion, without warning, to an adjusted Level 3 set of restrictions in response to the second wave of infections will lead to new sectoral losses at a time when previous relief measures no longer apply. It now all hinges on the confidence with which the current forecasts are being made and on how the likelihood of the best forecasts turning out to be quite wrong will be judged. Therefore, 2021 will be a year for strong nerves,” warns Prof Parsons.
“In any case, the economy will not return to its prepandemic output levels for some time and a full economic recovery may not materialise until 2022/2023, even with the most confident growth projections that are being made. The pace at which this will occur will depend not only on South Africa’s basic economic resilience, but also on what policy steps are taken in 2021 to translate the anticipated economic rebound into sustained growth in the years ahead. This year, South Africa faces the double challenge of containing and managing Covid-19 outbreaks while simultaneously implementing policies and projects to promote inclusive growth,” says Prof Parsons.
Prof Parsons concludes by stating the importance of the country’s ability to look beyond the pandemic.
“Growth rates had been too low for too long and the country had already fallen far short of its National Development Plan targets. Policy reform and essential infrastructural projects needed to be kick-started, even before the pandemic.”
In the next part of the series Prof Parsons looks at how the State of the Nation Address and the Budget in February must build credibility, as well as at some tough decisions the government must make.
